NEW YORK – Castle Biosciences reported after the close of the market on Tuesday that its fourth quarter revenues rose 54 percent year over year.
For the three months ended Dec. 31, 2019, the skin cancer diagnostics company reported revenues of $17.6 million, up from $11.4 million a year earlier, and beating the average Wall Street estimate of $11.7 million.
Affecting Q4 revenues was the issuance of the Medicare Local Coverage Determination (LCD) for Castle's DecisionDx-Melanoma test, effective Dec. 3, 2018, and confirmation of the Medicare contractor rate for DecisionDx-Melanoma. As a result of the timing of these two events, all 2018 Medicare claims covered under the LCD were recognized as revenue in Q4 2018. Medicare revenues for DecisionDx-Melanoma associated with test reports delivered in the first three quarters of 2018, but not recorded until Q4 2018, were $5.2 million. Also, included in revenues for the quarters ended Dec. 31, 2019 and 2018 were revenue adjustments related to tests delivered in prior periods of an additional $4.3 million and minus $1.2 million, respectively.
In Q4 2019, Castle delivered 4,480 DecisionDx-Melanoma test reports, a growth of 37 percent compared to the 3,270 reports delivered during Q4 2018. The company also delivered 434 DecisionDx-UM test reports in Q4 2019, up 13 percent from 385 reports during Q4 2018.
"The Castle Biosciences team delivered very strong results in 2019, with growth in test report volume and revenue, continued evidence development for DecisionDx-Melanoma and DecisionDx-UM tests, and advancement of our pipeline products," Castle President and CEO Derek Maetzold said in a statement. "Our team also delivered on two commercial expansions, with all 32 outside sales territories filled as of December 2019, establishing a solid base for execution of our 2020 plan."
The company presented data on its late-stage pipeline test, DecisionDx-SCC, for use in patients diagnosed with high-risk cutaneous squamous cell carcinoma (SCC), which demonstrated the ability of the test to stratify patients presenting as high risk into those who are truly high risk from those who are lower risk, Maetzold added. DecisionDx-SCC is designed to aid physicians in the development of appropriate, risk-aligned treatment plans, and the test remains on track for commercial launch in the second half of 2020.
Further, he noted, the company's development of a third skin cancer product, for use in patients with a suspicious pigmented lesion, remains on track for commercial launch in the second half of 2020.
"We estimate that combined, our three skin cancer products, DecisionDx-Melanoma, DecisionDx-SCC, and our test for suspicious pigmented lesions, will have a total addressable US market of approximately $2 billion," Maetzold said.
On a conference call with analysts following the release of the earnings, Maetzold noted that the company believes its tests were being used for about 12 percent of the 130,000 invasive cutaneous melanoma patients in the US as of the end of 2019, and that 25 percent to 30 percent of the 11,000 to 15,000 eligible ordering clinicians have adopted the tests.
He also said Castle expanded its sales territory to 32 territories and doubled its sales and medical affairs personnel to the low 50s at the end of 2019. The company had planned to deploy the new sales staff members to various conferences around the country, as well as to meet with physicians. Because of the ongoing COVID-19 outbreak, Maetzold said, Castle has already seen a couple of conferences that it would normally attend cancelled. But so far, he added, the company hasn't heard any feedback from its reps in terms of local interactions with physicians being cancelled or postponed.
Although the firm doesn't yet know if fewer patients will venture out to see physicians, dermatologists, or surgical oncologists because of the COVID-19 outbreak, Castle expects the effect on its business to be "mild and moderate," if there is one at all, Maetzold said, adding that "if patients are concerned about a skin cancer or eye cancer event, if people need care, we expect they'll still seek out care."
He also noted that none of the reagents Castle uses are made in China, limiting the company's exposure to supply chain problems. Though there is always the possibility that a manufacturing facility contracted to Castle may close or have employees go home because of exposure to the virus, Castle continues to check in with its vendor partners and is also maintaining a "healthy supply" of reagents in order to limit problems, Maetzold said.
The firm's Q4 net income fell to $2.1 million, or $.11 per share, from $2.9 million, or $.38 per share, a year earlier. Wall Street analysts had estimated a loss per share of $.20 for the quarter.
Castle's Q4 R&D expenses almost tripled to $3.2 million from $1.1 million a year earlier, and its SG&A costs for the quarter more than doubled to $9.9 million from $4.2 million.
For the full year, the company's revenues rose 128 percent to $51.9 million from $22.8 million in 2018, beating the Wall Street estimate of $46.0 million.
The company delivered 15,529 DecisionDx-Melanoma test reports in 2019, up 29 percent from 12,032 reports in 2018. In 2019, new ordering clinicians for DecisionDx-Melanoma increased 24 percent compared to 2018. Additionally, total ordering clinicians in 2019 for DecisionDx-Melanoma increased 32 percent to 3,927, year-over-year, the company said. Castle delivered 1,526 DecisionDx-UM test reports in 2019, up 8 percent from 1,413 reports during 2018.
For 2019, the company reported income of $3.0 million, but a loss per share of $.21, compared to a loss of $10.2 million, or $5.33 per share, in 2018. Analysts had expected a loss per share of $1.37 for 2019.
Castle's 2019 R&D expenses rose 51 percent to $7.4 million from $4.9 million in 2018, and its SG&A expenses rose 81 percent to $29.8 million from $16.5 million.
The company had cash and cash equivalents of $98.8 million at the end of the year.
In 2020, Castle said it anticipates generating $61 million to $64 million in revenues. Analysts are expecting revenues of $53.1 million for the year.
During the conference call, Castle CFO Frank Stokes said that the company is not assuming any revenues from DecisionDx-SCC or the third skin cancer product for suspicious pigmented lesions in its 2020 guidance and doesn't expect that any revenues from those products will be material for the year. He also noted that the company expects volumes of its uveal melanoma product, DecisionDx-UM, to be relatively flat in 2020, which he said was typical for an older product. Castle will continue to support the product but expects revenue growth during the year to be driven mostly by volume growth in its newer offerings.